On Monday, the US dollar demonstrated notable strength against most major currencies, recovering significantly against the euro. This uptick was driven by a rise in Treasury yields, a trend that has been accelerating since last week’s U.S. presidential debate. The debate’s outcome, particularly President Joe Biden’s lackluster performance, has prompted market participants to reconsider the policy implications of a potential Donald Trump victory, leading to an uptick in yields.

Dollar’s Resurgence Amid Mixed Economic Signals

Despite the dollar’s recovery, the ISM manufacturing report presented a mixed economic picture. The report highlighted unexpectedly weak Purchasing Managers’ Index (PMI) figures and a substantial drop in prices paid. However, there was a silver lining with new orders showing some improvement, indicating a nuanced outlook for the manufacturing sector.

Political Dynamics and Market Sentiment

The recent debate has injected a level of political uncertainty into the markets, forcing investors to contemplate the potential policy directions under a possible Trump administration. This uncertainty has contributed to the rise in Treasury yields, as markets speculate on future fiscal and trade policies. However, it’s still early in the campaign season, and the eventual political landscape remains undetermined.

Upcoming Economic Data to Watch

This week promises a wealth of economic data for investors to digest, beyond the political sphere. Key reports to watch include:

• JOLTS (Job Openings and Labor Turnover Survey) on Tuesday.
• ADP Employment Report, Jobless Claims, and ISM Services Index on Wednesday.
• Non-Farm Payrolls Report on Friday.

These reports will be crucial in shaping market expectations for future Federal Reserve policy actions, particularly in terms of rate cuts.

Market Performance and Commodities

In the New York afternoon trading session, the S&P 500 posted a modest gain of 0.12%, remaining within a tight range as investors awaited the upcoming payrolls report for further direction on Fed policy.

Treasury Yields

U.S. Treasury yields saw an increase of 5-14 basis points across various maturities, with the 2s-10s yield curve steepening by over 6 basis points to a less inverted -29.3 basis points. This movement reflects market expectations of potential changes in monetary policy and economic conditions.

Oil and Commodities

• WTI Crude Oil: Prices surged by 2.31%, driven by optimism over increased demand during the Northern Hemisphere’s peak summer driving season. Additionally, concerns about potential supply deficits due to OPEC+ production cuts also supported the rally.
• Copper: Prices firmed by 0.33%, buoyed by positive manufacturing data from China. However, concerns over demand, exacerbated by rising inventories, limited the gains.
• Gold: The precious metal edged up by 0.18%, supported by short covering by investors. The focus remains on the upcoming U.S. jobs data, which is expected to provide further insights into the Federal Reserve’s policy direction.

Currency Movements

As the trading day neared its close, the dollar’s performance against major currencies was as follows:

• EUR/USD: +0.15%
• USD/JPY: +0.37%
• GBP/USD: -0.05%
• AUD/USD: -0.28%

These movements underscore the dollar’s strength in the face of rising yields and ongoing political and economic uncertainties.

The US market remains in a state of flux, with political developments and economic data driving investor sentiment and market movements. As the week progresses, attention will be focused on upcoming economic reports, which will provide critical insights into the health of the economy and potential policy responses. Investors should stay tuned for further developments as they navigate these uncertain times.